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Bench Strength: Grooming Your Next CEO

 
1/19/2004
Finding a new CEO goes beyond maintaining a roster of talent. Smart companies link succession planning with leadership development. An excerpt from Harvard Business Review.

What could be more vital to a company's long-term health than the choice and cultivation of its future leaders? And yet, while companies maintain meticulous lists of candidates who could at a moment's notice step into the shoes of a key executive, an alarming number of newly minted leaders fail spectacularly, ill prepared to do the jobs for which they supposedly have been groomed.

Look at Coca-Cola's M. Douglas Ivester, longtime CFO and Robert Goizueta's second in command, who became CEO after Goizueta's death. Ivester was forced to resign in two and a half years, thanks to a serious slide in the company's share price, some bad public-relations moves, and the poor handling of a product contamination scare in Europe. Or consider Mattel's Jill Barad, whose winning track record in marketing catapulted her into the top job—but didn't give her insight into the financial and strategic aspects of running a large corporation.

Ivester and Barad failed, in part, because although each was accomplished in at least one area of management, neither had mastered more general competencies such as public relations, designing and managing acquisitions, building consensus, and supporting multiple constituencies. They're not alone. The problem is not just that the shoes of the departed are too big; it's that succession planning, as traditionally conceived and executed, is too narrow and hidebound to uncover and correct skill gaps that can derail even the most promising young executives.

By marrying succession planning and leadership development, you get the best of both.

However, in our research into the factors that contribute to a leader's success or failure, we've found that certain companies do succeed in developing deep and enduring bench strength by approaching succession planning as more than the mechanical process of updating a list. Indeed, they've combined two practices—succession planning and leadership development—to create a long-term process for managing the talent roster across their organizations. In most companies, the two practices reside in separate functional silos, but they are natural allies because they share a vital and fundamental goal: getting the right skills in the right place. ...

Focus on development
The fundamental rule—the one on which the other four rest—is that succession management must be a flexible system oriented toward developmental activities, not a rigid list of high-potential employees and the slots they might fill. By marrying succession planning and leadership development, you get the best of both: attention to the skills required for senior management positions along with an educational system that can help managers develop those skills.

It's a lesson that might have helped Coca-Cola and Mattel. Coke's Ivester was given the top job largely as a reward for his financial savvy and years of loyalty to Goizueta and the company; but not enough attention was paid to how his particular skills might apply to the broader role. And as for Barad, she had grown Mattel's Barbie brand nearly tenfold in less than a decade, yet her controlling management style and lack of experience in finance, strategy, and the handling of Wall Street—essential capabilities for any CEO—proved to be her downfall. Early intervention might have exposed her limitations and provided an opportunity to develop these skills—and perhaps would have kept her career on track. And indeed, Robert Eckert, who became CEO at Mattel after Barad, links succession directly to development efforts.

It's not just about training. Leadership development, as traditionally practiced, focuses on one-off educational events, but research at the Center for Creative Leadership in Greensboro, North Carolina, has shown that participants often return to the office from such events energized and enthusiastic only to be stifled by the reality of corporate life. It's far more effective to pair classroom training with real-life exposure to a variety of jobs and bosses—using techniques like job rotation, special assignments such as establishing a regional office in a new country, and "action learning," which pulls together a group of high-potential employees to study and make recommendations on a pressing topic, such as whether to enter a new geographical area or experiment with a new business model.

Leadership development, as traditionally practiced, focuses on one-off educational events.

Eli Lilly, for example, has a biannual action-learning program that brings together potential leaders, selected by line managers and the human resources department, to focus on a strategic business issue chosen by the CEO. Eighteen employees identified as having at least executive-director potential, representing a mix of functions and regions, participate in a six-week session in which they meet with subject matter experts, best-practice organizations, customers, and thought leaders, and then analyze what they've learned. In 2000, one such team was charged with developing an e-business strategy as a new avenue of growth—an issue that was a pressing concern at the time. The group interviewed more than 150 people over five weeks and in the final week developed a set of recommendations to present to senior managers—who took their ideas quite seriously. For example, the group recommended naming an e-executive and providing a certain level of funding to the initiative. Without hesitation, the CEO responded, "We will appoint an e-executive within two weeks, and he or she will report to me…appropriate funding will be made available." And he followed through on those promises.

Learning in action
Action-learning programs such as Lilly's serve a dual purpose: They provide developmental experiences for employees—who are forced to look beyond functional silos to solve major strategic problems and thus learn something of what it takes to be a general manager—and they result in a useful work product for the company. Such programs have increased in importance because many companies, in downsizing and creating economies of scale, have eliminated a number of the roles that used to be prime training grounds for top management.

Look at Dow Chemical. Under its old organizational structure, some sixty countries had country managers—who were, in essence, country presidents—to whom all the business units and functions reported. These roles served as excellent opportunities for developing general management skills. In 1995, the company consolidated into thirty global business units built around business and functional specialties like the manufacture of a specific set of chemicals. Under this structure, all functions report to the global business-unit leaders, and the country manager is essentially an integrator. The new structure allows Dow to enjoy the economies of scale now permitted by the relaxing of trade barriers, but it reduces the number of developmental opportunities by half. In addition, about ten years ago an employee might have been a country manager in his or her late thirties to mid-forties. Today the average age of those heading the global lines of business is mid-forties to early fifties, which means that people wait longer to step into the role.

One way to provide general management experience in this environment is to launch small joint ventures or internal enterprises. Managers can also make lateral moves across functions and business units. For example, one of Dow's global business-unit heads served for a time as president of operations in the Asia-Pacific region to gain a cross-functional perspective. And a future leader in the research organization was named vice president for purchasing, to broaden her expertise.

Opportunities like these should be incorporated into individuals' development plans, with mechanisms to trigger associated developmental activities as needed. Lilly's group development review (GDR) is mandatory for the approximately 500 employees who are identified through the company's talent assessment process as having executive potential. The GDR is a periodic, in-depth review of a single person, involving input from both past and present supervisors (the employee is not present for the meeting). In a facilitated ninety-minute discussion, the group identifies the next steps the employee should take, gathering input from others in the organization if necessary. The immediate supervisor then shares a summary of the results with the employee, who, with the supervisor, is responsible for incorporating the feedback into his or her development plan.

One way to provide general management experience ... is to launch small joint ventures or internal enterprises.

A marketing manager we'll call Bob was the subject of a recent GDR session. During the review his current and previous supervisors concluded that he was overly dependent on his strategic-thinking skills and needed more operational experience before he could be promoted to the executive level. Bob's supervisor shared this information with his peers during the marketing function's next succession management meeting, and the team agreed to help Bob round out his skills by placing him in a key sales role in Europe. When an employee goes through a significant transition such as Bob's—taking on an important role without the experience usually required—Lilly generally mitigates the risk by placing the person with employees who are already strong contributors. Company leaders also make periodic progress checks and may send the employee to a training program or appoint a mentor (not the employee's boss) to give hands-on guidance.

Excerpted with permission from "Developing Your Leadership Pipeline," Harvard Business Review, December 2003, Vol. 81, No. 12.

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Jay A. Conger is a professor of organizational behavior at the London Business School and a senior research scientist at the University of Southern California's Center for Effective Organizations in Los Angeles.

Robert M. Fulmer is the academic director at Duke Corporate Education in Durham, North Carolina, and a distinguished visiting professor at Pepperdine University in Malibu, California.